An unprecedented year – that's how Swiss consultancy Pexapark has defined the 12-month period that started in September 2021. The gas crisis has turned into a broader energy crisis, triggering price uncertainty and pushing market volatility to stratospheric in August 2022. In Germany and France, one-year electricity contracts surpassed €1,000 ($987)/MWh for the first time, while in the Netherlands, it was negotiated at more than €300/MWh.
However, it seems that the intervention in the electricity markets that was recently approved by the European Commission has caused prices to drop significantly. In Germany, for example, prices are now below €500/MWh. However, as a consequence, 10-year PPAs for solar, onshore wind and offshore wind technology have doubled in price this year to an average of €107.80/MWh.
Higher risks and growing margin and collateral requirements are limiting the ability of market players to trade over the long term, with many refraining from signing new long-term PPA deals. Nonetheless, around 6.81 GW of capacity has been announced under PPAs since September 2021, compared to 5 GW in the same period a year earlier.
Volatility and tension in energy markets are expected to continue into the winter, with gas and electricity prices remaining high in the short to medium term. That will continue until significant new supplies are added, if demand eases, or if a major recession fundamentally changes the outlook.
That said, market intervention could lead to two different outcomes. In the best case scenario, it could help to reduce volatility and bring supply and demand into balance. In the worst case scenario, rapid, unilateral actions by countries could create additional uncertainty, which could cause investors to lose confidence and slow renewables expansion at a time when Europe needs it most.
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